The market is always right

Doesn't the market know it is supposed to be down three days after a big jobs report rally?  Doesn't it know that it was supposed to have a difficult time moving back over 1285, the breakdown point from last week?  Doesn't it know that oil moved up strongly yesterday and is now trading back above its 50-day moving average? 

Doesn't it know that the Nasdaq 100, the largest tech stock index, is lagging well behind the rest of the market and that is a negative for a bull market?

This market just doesn't know what it's doing, except for one thing:  The market is always right!  That's right.  If the market moved up, that was the right thing.  If it moves down, that is the right thing.  No matter what our indicators say.  No matter what it did yesterday or last week, it is right. 

The problem is it is only right while it is happening and we have to put our money in place before the market tells us what is right.  That is why we have to look for clues to what might come next.  I can tell you where to put your money yesterday.  It's today that's a bit tougher.

So what are the clues?  Well, we know the market put in its highest close in five years yesterday.  It's hard to argue with that.  We also know that the S&P has had two failed breakouts at this level in the last couple of weeks.


                          Chart provided courtesy of www.decisionpoint.com

We know that this is an options expiration week and it has a bullish bias, but it is also tends to be volatile. 

We know that sentiment has been more bearish than you'd expect when the market is this close to a new high and that could be why the market has continued to climb the "wall of worry."  If more bears don't start turning bullish (believe the market will go higher) this climb may continue.  << That's got to be a confusing concept for someone new to market sentiment.  Today the AAII survey is going to be taken and tomorrow will show us the results.  Can there still be 30% bears out there?  I doubt it.

I mentioned the Nasdaq 100 index above.  A good bull market is normally led by the technology stocks.  When it isn't, it raises some suspicion.  Will this diversion lead to another false breakout or will techs come around?


                                    Chart provided courtesy of www.decisionpoint.com

The jobs report trend we talked about on Monday (see the second half of this page for Monday's comments) tells us that the weakness starts to kick in on the third day after the report. 

    
                          Chart provided courtesy of www.sentimentrader.com

The last thing I want to mention is that the new high on the S&P 500 and the NYSE indexes brought with it only 188 new highs on the NYSE.  That happened a couple of times in 2005, according to sentimentrader.com, but before that you'd have to go back to March of 2000.  Since 1997, this has resulted in a future one-month return of -1.1% with just 38% of instances being positive.  400, 500 or even 600 new highs would be more in line with an index's new high. 

Does anyone remember March of 2000?  Do you think there were any bears back then? 


                                    Chart provided courtesy of www.decisionpoint.com

OK, that was a stretch.  It really happened but that was an extreme case and the Nasdaq was the most exaggerated index to make my point.  For the record, I DO NOT believe we will see anything like that any time soon but it was hard to find anybody who thought the market would ever fall after the five years of positive action that led up to the fall. 

I can speculate all I want be we know the market is always right.  Which way will be right today?

That’s all for today.  Currently 100% G fund.  Thanks for reading.
 

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